Are you a winner or loser under Senate tax plan?

Thursday

Nov 30, 2017 at 6:27 PMDec 1, 2017 at 11:59 AM

Chris McKenna Times Herald-Record @ChrisMcKenna845

A Hudson Valley family of four that earns $80,000 a year might have a reason to cheer the Senate Republicans' proposed tax overhaul, and a family of the same size with $375,000 in annual income should be delighted by the plan.

But for a household of four with annual earnings of $150,000, the Senate bill is a stinker - even worse than the proposal the House of Representatives passed four weeks ago.

An analysis of the Senate bill's potential impact by a partner at the RBT CPAs accounting firm in Newburgh found that it would magnify the disparities of the House bill for three hypothetical families with different income levels. The Senate bill increased the potential tax cuts at the top and bottom - especially at the top - in comparison to the House bill, and imposed an even bigger tax hike on the family in the middle, despite the Republicans' portrayal of their plans as a middle-class tax cut.

In general, the Senate's version of tax reform would be worse for New York and other high-tax states than the House bill because it would end the deduction for property taxes rather than cap it at $10,000, as House Republicans voted to do.

But the Senate bill also lowers tax rates and enables wealthier families to claim child tax credits for the first time, creating a windfall for the $375,000 household.

Here are the tax amounts that RBT partner Ita Rahilly calculated for both proposals, compared to what the families would pay under existing law. All three scenarios involved a family of four - two adults and two dependent children - in which the parents jointly file their taxes, own their home and have a mortgage with a 4.5 percent interest rate. What varied in each case were the household’s adjusted gross income, property taxes and mortgages. The property-tax amounts were based on actual bills in Orange County for homes at given market values.

Scenario 1: $80,000 annual income

The household in this case would get a slightly larger tax cut with the Senate version because of a more favorable rate structure and a larger increase in the child tax credit. Under existing law, the child tax credit lowers this family's tax bill by $2,000 ($1,000 per child). The House bill ups the credit to $1,600 per child and adds a credit of $300 per parent, for a total of $3,800. The Senate's bill would raise the child tax credit to $2,000, for a total of $4,000 in this household.

Like the families in the other two scenarios, this one wouldn't benefit at all from the proposed increase in the standard deduction in both the House and Senate bills, since it wouldn't make up for the large deductions Republicans want to eliminate or limit. But the bigger child tax credits more than offset lost deductions in this case, resulting in a tax decrease of almost $1,700 under the Senate bill.

This example assumed a $180,000 mortgage and $6,000 in annual property taxes.

Taxes under current law: $4,029

Taxes under House bill: $2,872 ($1,157 decrease)

Taxes under Senate bill: $2,339 ($1,690 decrease)

Scenario 2: $150,000 annual income

This family would pay more taxes under either bill, but would fare worse under the Senate plan. The only thing saving it from a huge tax hike is the child tax credit.

Under existing law, which phases out the child tax credit at higher incomes, this family earns too much to claim any credit at all. But it would get $3,800 in credits for children and parents under the House bill and $4,000 in child credits with the Senate plan.

Those credits softened the blow of losing deductions. The net result would be a $500 tax increase under the Senate bill.

This scenario assumed a $360,000 mortgage and $16,000 in property taxes.

Taxes under current law: $15,099

Taxes under House bill: $15,450 ($351 increase)

Taxes under Senate bill: $15,599 ($500 increase)

Scenario 3: $375,000 annual income

The most affluent family in these three scenarios stands to get a nearly $13,000 tax cut under the Senate bill because of lowered rates, the elimination of the alternative minimum tax and the expansion of the child tax credit. Ending the alternative minimum tax alone cuts almost $9,500 from this family's taxes. Enabling them to claim child tax credits for the first time saves $4,000 more.

This example assumed a $540,000 mortgage and $20,000 in property taxes.

Taxes under current law: $85,501

Taxes under House bill: $82,670 ($2,831 decrease)

Taxes under Senate bill: $72,828 ($12,673 decrease)

cmckenna@th-record.com

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